4.1 The Tax Office has worked internally and with the IGT to agree on a significant range of actions aimed at improving its settlement administration and active compliance matters affecting settlements. The Tax Office has commenced a program of work for making both short-term and longer term improvements in the administration and integrity of the end-to-end settlement process. The overall aim of this work is for the Tax Office to make a fundamental improvement in settlement administration and risk mitigation by considering all stages of settlement administration and decision-making, as well as considering settlements as an integral part of the disputes process. The intended outcome is increased community confidence in the transparency, consistency, correctness, integrity and administrative soundness of settlement decisions. The IGT will, in accordance with current practices, review the implementation of these actions at a future date.

4.2 The agreed range of actions is set out below.

Settlement administration

  1. With the aim of improving the quality of settlements recording, the Tax Office will complete a six-month body of work that commenced in February 2009 that focuses on putting in place 'immediate next step' improvements to raise the quality of settlement register recording (in terms of completeness and accuracy) and reporting to Parliament for the 2008-09 year.

    "Tax Office comments: Agreed — All of the entries entered on the Settlement Register for the 2008-2009 year have been checked for accuracy and completeness against the source settlement documentation as part of a dedicated project on settlement data integrity led by the Law Infrastructure Branch in the Law and Practice Business Line. This project is now complete. However, the intelligence gathered from this process has been incorporated into integrity and assurance processes for settlement register data going forward (these are outlined in agreed Change 2 below).

  2. With the aim of improving the integrity checks on data recording, the Tax Office will reduce the number of accountability points involved in the settlement registration process and centralise the settlement register's management within the Law Infrastructure Branch in Law and Practice.

    Tax Office comments: Agreed — As from 1 July 2009, the accountability for the integrity of the settlement register data rests with a network of business line settlement co-ordinators, and the overall responsibility for settlement integrity rests with the Law Infrastructure Branch. These co-ordinators have responsibility for carrying out integrity checks on the data that is entered into the settlement register. The integrity of the settlement register data is measured against integrity measures relating to timeliness, accuracy and completeness and will be reported on a quarterly basis to the Tax Office Integrity Adviser (with the first report due in November 2009). The Law Infrastructure Branch in Law and Practice will continue to monitor the integrity of the business line data and provide advice or take corrective action as appropriate.

  3. With the aim of improving management reporting on settlements, the Tax Office will increase the management reporting in relation to the settlement register information.

    Tax Office Comments: Agreed — A suite of special purpose reports, in addition to the information supplied for the annual report, has been developed. These reports analyse the settlement register data on different bases (for example, business line, nil variance cases, notional loss cases). These special purpose reports can and will be supplied to internal stakeholders and internal fora for the purposes of examining settlement activity in the Tax Office. In addition, the information in these reports may be used to respond to possible requests from external scrutineers such as the Joint Committee of Public Accounts and Audit, the Australian National Audit Office and Senates Estimates Committees.

  4. With the aim of improving understanding of respective roles and responsibilities for officers involved in settlement administration, the Tax Office will clarify accountabilities, roles and responsibilities in relation to settlement administration.

    Tax Office Comments: Agreed — This agreed change will be achieved through (i) putting in place improved corporate governance arrangements for settlements that will examine settlement activity in a systemic way from a whole-of-Tax Office perspective; (ii) including role and responsibility definitions within user documentation to support the Code and register; and (iii) reducing the number of accountability points involved in the settlement registration process (see details at agreed change 2 above). These changes will lead to an improved understanding of the respective roles and responsibilities of those involved in settlements administration.

  5. With the aim of improving the quality of settlements decision-making and administration, the Tax Office will promote an integrated approach to the identification, monitoring and actioning of quality issues arising with settlements decision-making and administration, and identify continuous improvement opportunities through Integrated Quality Framework (IQF) implementation.

    Tax Office Comments: Agreed — The process to deploy IQF for settlements commenced on 1 July 2009 and IQF for settlements is expected to be fully operational by July 2010. The IQF deployment for settlements is currently in the scoping and design phase.

  6. To facilitate improvements in dispute resolution (including the avoidance of disputes), the Tax Office will implement a framework for ongoing analysis of reasons for differences between initial Tax Office positions communicated to taxpayers and settled positions. The Tax Office will also implement mechanisms to drive improvements in upstream processes that are identified in this analysis. For cases ending in settlement this will include:
    • recording the initial Tax Office position communicated to the taxpayer and the settled position; and
    • analysis of the specific reasons why the settled position was not reached in the initial Tax Office position, with the aim of identifying improvements that would help to avoid the potential for disputes arising, including:
      • the specific reasons for the material differences between the two recorded positions (that is, an explanation of the reasons for the change in quantum between the positions); and
      • the specific reasons why the settled position was not reached in the initial Tax Office position (including reasons which fell outside of the Tax Office's control, such as taxpayers' failure to provide requested information).

    Tax Office comments: Agreed in principle — The ATO's case management system for active compliance, objection and litigation work, together with mandated work practices, currently requires case officers to record details of all ATO positions that are communicated to taxpayers at each stage of the life cycle of a case. However, integrated end-to-end reporting and analysis across the life cycle of a case is not currently available (see agreed change 19 and our response for more details).

    The Settlement Register and Settlement Register User Guide are currently being redesigned to ensure more consistent data capture and recording of the Tax Office's pre-settlement position (the ATO position communicated to the taxpayer immediately prior to the commencement of the negotiations that lead to settlement), settlement position, and the reasons for variance between those positions. It is expected that this work will be completed by July 2010. The Tax Office is also working on bringing the settlement process more fully within our Siebel case management system, which should provide for more comprehensive end-to-end and integrated data capture around our settlement activities so as to replace the need for the current settlement register.

    As indicated in the ATO response to agreed change 3 above, regular reporting and analysis of settlement data, including analysis of the reasons for settlement, analysis of variances, and the identification of opportunities to improve the Tax Office dispute resolution processes, will be part of the integrity management and monitoring role of Law Infrastructure Branch. It is also expected that particular business areas would conduct similar analysis on an ad hoc basis (for example, a review of settlements following a compliance project). Our capacity and capability for this work will develop over time, but is presently constrained by the absence of integrated end-to-end reporting and analysis across the life cycle of a case (see agreed change 19).

    Agreed change 6 will also inform the design of IQF for settlements (further to agreed change 5 above) to ensure analysis of changes in reasoning and identification of opportunities for improvement is considered in pre- and post-settlement quality assessments.

  7. Entries on the settlement register should clearly record the evidentiary basis for asserted compliance with paragraphs 25 and 26 of the Code of Settlement Practice.

    Tax Office comments: Agreed in principle — The current functionality of the Settlement Register has limitations on the amount of text that can be entered to explain the basis of the settlement decision and this would not be the appropriate vehicle to capture this level of detail. However, the evidentiary basis for asserted compliance with paragraphs 25 and 26 should properly be captured within the settlement submission that is prepared by the case officer for approval by the SES delegate who is empowered to make the decision to settle. The Tax Office will examine ways to improve (i) the understanding of the case officers and SES decision makers as to the requirements of paragraphs 25 and 26 of the Code; (ii) the documentation of the reasons for asserted compliance or otherwise with these parts of the Code; and (iii) the decision-makers' understanding of their responsibilities in signing off on a decision to settle. The Tax Office is also working on bringing the settlement process more fully within our Siebel case management system, which should provide for more comprehensive and integrated data capture around our settlement activities so as to replace the need for the current settlement register.

  8. Revised and improved user documentation will be made publicly available and required to be followed by Tax Office officers in relation to the following:
    • what does and does not constitute a matter appropriate for consideration for settlement (that is, when is it appropriate for the Tax Office and taxpayers to settle a matter), including the principle that settlements would not generally be appropriate where the Tax Office concedes a material change to its precedential view or the application of the precedential view to the facts and evidence of the case in question — this should be done by quicker and less costly means, such as allowing the objection and subsequently updating the precedential view, rather than through settlement;
    • practical guidance for application of settlement criteria, such as 'genuine uncertainty as to the proper application of the law to the facts' (this will form part of any assessment by the Tax Office as to whether settlement of a case is appropriate);
    • settlement terms in settlement deeds should relate only to the subject matter that affects the basis on which the quantum is settled and any obligation to comply in future in relation to that particular subject matter (and not broad commitments to being compliant taxpayers on non-related matters generally, agreeing to raise all potential tax-relevant transactions with the Tax Office in the future, nor matters under dispute but which do not directly affect the basis on which the quantum is settled); and
    • the Tax Office will revise PS LA 2007/5 and 2007/6 to provide improved linkages and reference points to the Code of Settlement Practice.

    Tax Office comments: Agreed — The Tax Office is currently working on improved instructions and guidance to staff which will reflect the changes above. These changes will also inform design and application of the Integrated Quality Framework to settlement decisions and processes. It is expected that this work will be completed by July 2010.

  9. Templates for settlement deeds will be amended to ensure fairness and consistency of treatment in certain settlements over time, so that taxpayers have an option to reopen a settled case where the Tax Office subsequently changes its view of the law on which the settlement was based, in a way that would have achieved a better outcome for the taxpayer, subject to the following conditions:
    • this applies to settlements that resolved only one matter in dispute (and not multiple issues — 'global settlements');
    • the taxpayer has requested that the settlement be reopened;
    • the timeframe is limited to the relevant amendment period; and
    • the settlement was concluded after the public release of this report.

    Tax Office comments: Agreed — Settlements represent an agreement by both parties to a dispute on a mutually negotiated position following a considered assessment by each party of the risks and potential benefits of continuing the dispute. For this reason, the Tax Office does not believe that settlements should be undone lightly or without good reason. However, the Tax Office agrees that, in the interests of fair and reasonable administration, some settlements can and should be reopened in the limited and exceptional circumstances outlined above. The Tax Office will deliver this agreed change through revised guidance for staff.

  10. Although the Tax Office has existing mechanisms aimed at providing a quality of taxpayer experience and ensuring probity of the settlements process, there remains room for further improvement. The Tax Office will develop and implement mechanisms to:
    • improve the taxpayer experience in relation to the settlement process and access to settlement by providing a 'circuit breaker' or 'reference point' for taxpayers with the aim of:
      • drawing on significant alternative dispute resolution and settlement experience; and
      • providing a fresh set of eyes for decisions to access the settlement process or disputes arising in the settlement process.

    Tax Office comments: Agreed — The Tax Office is currently developing and deploying a more integrated, transparent and cost effective approach to taxpayer dispute resolution. To achieve this, the Tax Office is building infrastructure and providing guidance and training to ensure that tax officers adopt the following dispute resolution principles when approaching their work:

    • identify and resolve taxpayer disputes as early as possible;
    • deploy alternative approaches to dispute resolution in all areas, as appropriate; and
    • ensure, within reason, relevant information and evidence is captured where litigation is inevitable.

    Alongside existing complaint and escalation processes, the new mechanisms also include opportunities for issues to be escalated for review by more senior and experienced tax officers, who can bring a fresh perspective and act as a 'circuit breaker' for otherwise difficult or intractable disputes.

    • prevent inappropriate use of settlements by implementing a probity check with the aim of:
      • minimising unnecessary cost and delay by providing 'real-time' assurance of the probity of settlements and the use of the settlement process;
      • ensuring that material changes in the Tax Office position are communicated to relevant taxpayers;
      • ensuring that entry into settlement is appropriate;
      • drawing on significant experience in settlement matters; and
      • providing a fresh set of eyes on significant probity decisions in the settlement process.

    Tax Office comments: Agreed — The Tax Office is currently undertaking a program of work to improve the integrity and probity of our settlement processes. These have been outlined in more detail in the Tax Office comments on agreed changes 1-9.

  11. The Tax Office will develop and implement a redesigned business model dealing with disputes over tax liabilities as an end-to-end process, including improving the linkages between settlements and its upstream and downstream processes.

    Tax Office comments: Agreed — The Tax Office is currently developing and implementing a more integrated, transparent and cost effective approach to taxpayer dispute resolution. To achieve this, the Tax Office is building infrastructure and providing guidance and training to ensure that tax officers adopt the following dispute resolution principles when approaching their work:

    • identify and resolve taxpayer disputes as early as possible;
    • deploy alternative approaches to dispute resolution in all areas, as appropriate; and
    • ensure, within reason, relevant information and evidence is captured where litigation is inevitable.

    For settlements, the Tax Office is working towards putting in place improved governance arrangements at both the corporate and business line level. The governance arrangements at the corporate level will allow for a systemic review of settlement activity across the Tax Office and how this activity impacts and connects with other parts of our tax administration and dispute resolution. The governance arrangements at the business line level will focus on improving the robustness of settlement decision-making by ensuring there is access by the SES decision-maker to multiple points of input as and when required.

  12. Before entering and during settlement negotiations, the Tax Office will ensure that it discloses changes to its approach which would reduce the range of settlement points and not allow taxpayers to labour under misconceptions about their likely 'out of pocket' liability.

    Tax Office comments: Agreed — The Tax Office expects our staff to discuss issues with taxpayers at all stages of the dispute process to ensure a common understanding of the issues and respective positions reached with respect to any likely tax liability. As part of the Tax Office's integrated approach to early dispute resolution, a range of improvement initiatives have been developed and deployed in the objections and litigation components of our end to end dispute resolution process. In particular, the Tax Office has recently deployed a risk-based indicator and supporting documentation that will help identify cases that may benefit from alternative approaches to resolution (such as case conferencing, mediation, conciliation, settlement, access to expert technical skills, etc.). Where such a case is identified, the Dispute Resolution Network can also provide advice on whether alternative approaches to dispute resolution are appropriate, and which approach would be most beneficial.

    A similar tool is being developed for the original decision (active compliance) component of our dispute resolution process.

Active compliance matters affecting settlements

  1. The Tax Office will extend to all multiple taxpayer or 'leveraged' active compliance cases, implementation of the agreed recommendation C in the IGT's fourth report of its major, complex issues review (namely to undertake adequate field work to identify the issue and to differentiate categories of taxpayers' circumstances, and to test the quality of Tax Office information that was provided to taxpayers to help them meet their obligations before a compliance strategy is designed and commenced). 'Leveraged' active compliance cases are those cases that involve the same compliance concern or technical issue — such as groups of cases that are the subject of a particular Tax Office active compliance project.

    Tax Office comments: Agreed — Tax Office Risk owners for major compliance activities will ensure that:

    • adequate field work is undertaken to identify the issue and differentiate categories of taxpayers' circumstances;
    • direct communication takes place with affected taxpayers and/or their advisers;
    • regular reappraisal is made of compliance and revenue risk and costs; and
    • the quality of information provided to taxpayers to help them meet their obligations is tested before a compliance strategy is designed and commenced.
  2. In multiple taxpayer or 'leveraged' active compliance cases, the Tax Office will ensure that the Centres of Expertise or Tax Counsel Network assures the correct application of the view to the facts (representative of the types of facts involved) before issuing amended assessments.

    Tax Office comments: Agreed in principle — The Tax Office already employs a range of escalation processes to ensure appropriate application of the Tax Office precedential view to the facts of a case or set of cases, including review by Centres of Expertise or Tax Counsel Network where warranted. In cases involving significant numbers of taxpayers or 'leveraged' active compliance activities involving significant risks or issues, the Tax Office agrees that these matters will generally be escalated for CoE or TCN assurance in accordance with our usual practices (for example, the Priority Technical Issue process).

  3. Although the Tax Office has processes and policies that require officers to communicate changes to the Tax Office's view, the Tax Office will ensure that any changes to its view are transparently communicated to affected taxpayers and their representatives.

    Tax Office comments: Agreed in principle — The Tax Office already employs a range of mechanisms to ensure that any changes to the Tax Office view are transparently communicated to affected taxpayers and their representatives. It is not envisaged that any additional activity will be undertaken to meet or address this agreed change.

  4. The Tax Office will improve discipline surrounding the requirement for a sound evidentiary basis for active compliance decisions on primary tax and penalty decisions, including improvements in:
    • determining the material facts and the relevant evidence;
    • testing conflicting facts and evidence; and
    • determining the strength of relevance and admissibility of the facts and evidence.

    Tax Office comments: Agreed — The Tax Office's existing processes require a sound basis for our decisions. All cases completed in our Siebel case management system require the identification of facts, evidence and the decision on penalties needs to be related to those facts and evidence and needs to be in line with our tax rulings and practice statements on penalties. In particular, for compliance cases which may lead to the imposition of higher levels of culpability penalties including serious non-compliance cases, some high wealth individual cases or cases where a reasonably arguable position is absent, we will be mandating a range of new processes to improve the documentation and weighing up of our facts, evidence and penalty to be imposed. We have commenced rolling out these new processes across our active compliance capability and will be embedding them into our case management work processes.

    Furthermore, we are 'rolling out' new up-to-date skilling to embed the capability and discipline of our officers in evidentiary matters and these new processes.

    Our IQF processes will assist in adopting these new processes and continuously improving over time.

  5. The Tax Office will ensure that compliance case management systems and IQF processes reinforce Tax Office rules for auditors to cite the correct Tax Office precedential view in all compliance cases.

    Tax Office comments: Agreed — The design of our case management system with its links to Tax Office Law and our Quality Control system is intended to deliver this outcome. Our IQF processes which are intended to deliver continuous improvements over time, re-enforce this agreed better practice. Our IQF processes will also test and identify whether the rules have been complied with by auditors.

  6. During the review, the Tax Office improved its ability to record:
    • by liability component (such as primary tax, losses, penalties and interest) and by Tax Office functional area (such as LBI, GST and ATP), the liabilities raised against taxpayers before the formal settlement processes were triggered under the code;
    • by liability component and by Tax Office functional area, the settled position; and
    • the specific reasons for the material differences between the two positions (those differences which underlie the difference in quantum between the two positions).

    It also improved its ability to analyse the reasons for difference between the liability components actually imposed pre-settlement and those finally imposed.

    In light of the above, the Tax Office will facilitate public understanding of the revenue impact of settlement cases, by publicly reporting on an ongoing basis (for settled cases):

    • the aggregated amounts of liability actually imposed pre-settlement and that finally imposed, by liability component (such as primary tax, losses, penalties and interest) and by Tax Office functional area (such as LBI, GST and ATP); and
    • a summary of key findings of its analysis for the differences between the liability components actually imposed pre-settlement and those finally imposed.

    Tax Office comments: Agreed — As the ATO indicated in response to agreed changes 3 and 6 above, regular reporting and analysis of settlement data, including analysis of the reasons for settlement, analysis of variances, and the identification of opportunities to improve the Tax Office dispute resolution processes, will be part of the integrity management and monitoring role of Law Infrastructure Branch. These reports will be made publicly available at least once a year. It may be necessary to omit some figures to preserve confidentiality of tax affairs (similar to the treatment in Table 5 of this report).

  7. Publicly reporting a more comprehensive and detailed picture of the net contribution to revenue of compliance actions by the Tax Office is hindered at present by the following.
    • The regulatory framework around the running balance account and the resulting Tax Office data framework make it difficult to track, over time, active compliance liabilities for taxpayers.
    • The current data recording structures do not identify amounts raised through active compliance activities at the entry and exit points for the data (for example, the Tax Office estimates that between 40 and 60 per cent by number of all objections are self-amendments rather than disputed liabilities raised in active compliance activities — whether the liabilities raised were as a result of active compliance activities or not is not recorded in objection cases).
    • The current priorities of the Change Program are focused on delivering new transactional processing arrangements, which is a substantial body of work. The Tax Office advises that its reporting tools and processes will evolve over time once the new transactional arrangements have been bedded down.

    In recognition of the above, the IGT will, at least two years after this report, review the Tax Office's progress towards the goal of internally recording and publicly reporting, by market segment, the aggregate amounts of tax (with losses specifically identified) reduced from original Tax Office compliance-raised liabilities for each category of case including objections, appeals (including those resolved by withdrawing from litigation or entering consent orders) and settlements.

    Tax Office comments: Agreed as aspirational — The ATO currently reports on overall net revenue consistent with our obligations to government, as evidenced by our annual reporting to Parliament. For the purposes of greater transparency and improved management of our tax administration, the ATO agrees on the importance of integrated end-to-end reporting and analysis across the life cycle of a case. This would enable more detailed analysis of activities and their outcomes, including the net contribution to revenue of particular compliance activities. However, we do not currently have the reporting tools and processes to deliver the on-going, time series disclosures necessary to deliver a complete and detailed picture of net revenue contributions from any particular activity.

    As noted above, our Change Program is currently focusing on delivery of new transactional processing arrangements which is a substantial body of work. Our reporting tools and processes will evolve over time once the new transactional arrangements have been bedded down.

    We will continue to improve our publicly available reports over time as our reporting tools and processes permit.

  8. With the aim of promoting early and comparatively less costly resolution of disputes and providing the Tax Office with reasonable assurance that the taxpayer is not hiding any relevant facts, the Tax Office will replace the wording 'full and true disclosure of all relevant facts' in its model settlement deed with wording that makes the settlement conditional upon the taxpayer having revealed all material facts known by them at the time of settlement and requiring them to disclose any further material facts which may become known after the execution of the deed of settlement.

    Tax Office comments: Agreed —The Tax Office will replace the relevant clause in the model settlement deed with the following wording:

    'the taxpayer warrants to the best of his/her/its knowledge and belief that he/she/it has made a true and correct disclosure of all facts reasonably required in pursuance of settlement to the Commissioner prior to entering into this deed and agree to disclose any further material facts which may become known after the execution of this Deed of settlement.'

    It is important to stress the status of the model settlement deed which is contained as an appendix to the Code of Settlement Practice. It is a reference tool to be used during settlement negotiations to support any resolutions between the parties and can be departed from. It is open to both parties to negotiate the terms of the deed to ensure it is fair to the taxpayer and supports an outcome consistent with the Commissioner's administrative duty.

  9. During the review, the Tax Office improved its linkage between the active compliance and debt collection functions by involving its debt collection function in the active compliance design of project-based compliance activities. The Tax Office has improved its guidance to those officers tasked with approving active compliance decisions. It has also improved its independent checks to ensure that there is appropriate evidence to support the decision. Although these improvements have been made, there remains room for further improvement in relation to the following circumstances and tension points in administration that may arise in active compliance activities.
    • Taxpayers may 'disengage' from the Tax Office, or refuse to communicate with the Tax Office in whole, or for a period. In these circumstances, the Tax Office will need to determine a course of action on the best available evidence. This may result in the issuing of an assessment and the raising of a tax liability that may be in excess of an amount that would have been raised if the taxpayer had not disengaged from the Tax Office and had provided the best evidence available to them.
    • In the absence of taxpayer engagement, debt collection action is generally appropriate to collect the liability.
    • Where taxpayers seek to re-engage with the Tax Office during debt collection action or earlier, the Tax Office's processes should accommodate this re-engagement where taxpayers are seeking to provide better evidence in reducing the liability amount. However, taxpayers may perceive unfair Tax Office treatment when debt collection action is being taken at the same time as taxpayers are seeking to provide this evidence. This perception is likely to be compounded where taxpayers become aware that the Tax Office is considering settlement to resolve the dispute.
    • Delays in determining objections may mean that debt collection action is taken on liabilities that are based on evidence that is not as accurate as evidence that has been provided by taxpayers in the objection.
    • The Tax Office's functional separation of debt collection and tax liability dispute resolution may also result in missed opportunities to successfully re-engage with the taxpayer to resolve the matter efficiently. These missed opportunities may increase costs, by pursuing a debt that may be in excess of that ultimately determined, and promote perceptions of unfair treatment in the circumstances.

    Where assessments are issued in the above circumstances, the Tax Office will aim to promote future voluntary compliance behaviours and avoid the potential for perceptions of unfair treatment, by ensuring that it:

    • clearly explains to the taxpayer why it is raising such assessments and the role that the available evidence has played in the decision, and gives an indication of which further evidence would likely affect the taxpayer's liability;
    • ensures that tax officials (including debt collection officers) are alert to signals that the taxpayer is seeking to re-engage on the liability issues by providing better material evidence;
    • where the taxpayer seeks to re-engage on the liability issues by providing better material evidence, explores this re-engagement as an opportunity to efficiently and effectively resolve the dispute; and
    • quickly reassesses the liability on the basis of this further evidence (for example, as a fast-tracked objection, or as the audit area reconsidering the basis for liability and withdrawing the amendment and reissuing another, where appropriate) before further debt collection action is taken.

    Tax Office comments: Agreed — The Tax Office will continue to build on existing good practices around communication with taxpayers, including ensuring that tax officers clearly inform taxpayers of the reasons for our decisions, including more detailed explanations around evidentiary issues. Increased engagement with taxpayers is also a key element of our more integrated approach to dispute resolution (see our response to agreed changes 10 and 11 for more detail).

    With respect to debt collection activity in a dispute context, it has been a long-standing and well accepted legal and policy position that the Tax Office can collect debts notwithstanding that the liability may be in dispute. Our debt collection activity is guided by principles of reasonableness and proportionality, and balances the rights and interests of individual taxpayers and the community. The Tax Office Receivables Policy (which is publicly available on www.ato.gov.au) sets out the Tax Office's approach to disputed debt — see Chapter 3 'Risk Management' paragraphs 21-23. Many factors are considered when assessing the level of risk associated with a disputed debt which in turn impacts on the Tax Office's decision to institute debt collection activity. Where there are potential indicators of high risk such as evidence of dissipation or alienation of assets, it will be appropriate for the Tax Office to institute immediate legal action, even in the circumstances outlined above. The ATO will nevertheless continue to improve its linkage between the active compliance and debt collection functions.

  10. Where there are significant internal or external signals that the Tax Office's existing precedential view may need to be at least reviewed, the Tax Office will require officers to escalate the matter to the Centres of Expertise or Tax Counsel Network for their decision.Where there are significant internal or external signals that the Tax Office's existing compliance approach (for example, its approach to calculating an arm's length amount for a particular set of circumstances being reviewed in a number of cases) may need to be at least reviewed, the Tax Office will require officers to escalate the matter to the appropriate senior tax official (for example, the SES Risk owner) for their decision.

    If there is a change to that existing precedential view in a given compliance approach, the Tax Office will ensure:

    • it fully informs those known impacted taxpayers at the earliest possible time; and
    • it undertakes quick, complete and transparent rectification action with those known taxpayers where appropriate.

    Examples of 'significant internal or external signals' would include:

    • a tribunal or court decision which materially affects the basis for the Tax Office's view of the tax law — such as a decision on trust law which may affect treatment of income under Division 6, or a tribunal decision which indicates the tribunal's preferred approach to findings of fact; and
    • internal reconsideration of a Tax Office approach to a compliance issue that indicates a need to materially alter the approach for a particular factual matrix.

    Tax Office comments: Agreed — The Tax Office already employs a range of escalation processes to ensure appropriate levels of review where warranted, including review by Centres of Expertise or Tax Counsel Network, and including some of the situations identified above (for example, where a court or tribunal decision materially affects the basis for the Tax Office's view of the tax law). The improvements being delivered through the integrated dispute resolution processes (see ATO response to agreed changes 10 and 11) will further deliver guidance and mechanisms for escalation of disputes for further review.

  11. The Tax Office will move towards implementing its good communication practices across all its active compliance cases, including:
    • clearly explaining to taxpayers the role that the evidence has played in the decision, including, in relation to conflicting material evidence, the reasons why certain evidence was preferred; and
    • in circumstances where taxpayers fail to provide material evidence, explaining to taxpayers the impact that not providing the information will have on the compliance decision in their particular case, and following a reasonable opportunity for taxpayers to respond, quickly finalising these cases.

    Tax Office comments: Agreed — The Tax Office will continue to build on existing good practices around communication with taxpayers, including ensuring that tax officers clearly inform taxpayers of the reasons for our decisions, including more detailed explanations around evidentiary issues. Increased engagement with taxpayers is also a key element of our more integrated approach to dispute resolution (see our response to agreed changes 10 and 11 for more detail).

  12. Although the Tax Office has processes and policies concerning valuations, there remains room for further improvement in resolving disputes over valuations. The Tax Office will, within one year, examine recent settled cases that involved disputes over valuations, in order to:
    • identify the relevant facts, the events that indicated the dispute was imminent, how the dispute was resolved and why the dispute was ultimately settled;
    • identify early dispute resolution opportunities; and
    • develop and test strategies that will minimise the time and cost to both the taxpayer and the Tax Office in resolving disputes over valuations.

    Tax Office comments: Agreed — Disputes and settlements involving valuations will be used as a key area for exploring earlier resolution opportunities and strategies as part of our ongoing work around extending our integrated approach to dispute resolution into active compliance.